A WBD-Paramount Merger Would Hasten the Tech Takeover of Hollywood, but Change Little in Asia
The idea that Skydance might bid for Warner Bros Discovery, mooted only six weeks after David Ellison’s corporate vehicle swallowed Paramount Global, has been doing the rounds this week. Were it to happen it would hasten the tech takeover of Hollywood, but change little in Asia.
Even before Skydance has properly digested Paramount – some 2,000 job cuts are said to be in the pipeline – Ellison seems determined to spend.
He outbid Netflix with a $7.7 billion deal for US rights to Ultimate Fighting Championship, grabbed “Stranger Things” away from Netflix, confirmed a $1.25 billion deal for future episodes of South Park”, unveiled a slate of new movies and is the frontrunner to buy Bari Weiss’ web news organisation The Free Press.
WBD, which is also still in transition towards a demerger, has a current market capitalization of $46.7 billion and reportedly $35 billion of debt from 2022 when Warner Bros and Discovery came together. A roughly $80 billion mouthful is several multiples larger than the $8 billion Paramount acquisition and would possibly require finance or guarantees from David Ellison’s father Larry Ellison, the world’s second richest man, and his Oracle corporation.
At surface-level, that points to a further takeover of Hollywood by the tech titans of America’s Silicon Valley. These companies are vastly bigger than any of the conventional media corporations. Owning and controlling content makes them cool, prestigious and influential; represents smart vertical integration (think AI deployment in production and marketing) and gives them a place on everyone’s screens.
But it won’t be easy. Some commentators have likened the putative deal to Disney’s $71.3 billion purchase of the 21st Century Fox film and TV assets in 2019. That reduced the number of standalone Hollywood studios by one from (six to five). But it was superb timing by Rupert Murdoch, who sold the assets at the top of the market and right before COVID ushered in the dominance of streaming, meaning that Disney is considered to have overpaid.
Some analysts point to Warner Bros’ stellar current year at the cinema box office – “A Minecraft Movie” ($162 million debut); Ryan Coogler and Michael B. Jordan’s vampire thriller “Sinners” ($48 million), “Final Destination Bloodlines” ($51.6 million), “F1: The Movie” ($57 million), “Superman” ($125 million), Zach Cregger’s horror mystery “Weapons” ($43.5 million) and latterly “Conjuring: Last Rites.”
Other see the deep reserves of intellectual property, which may be less fully exploited than those at Disney as the most attractive prize on offer. But surely, we have heard that story before. This set of assets has had four sets of owners this century: AOL Time Warner (2001-2003), Time Warner (2003-2018), purchase by AT&T (2018-2022), takeover by Discovery to form WBD (2022-present). And since July, WBD’s management is proposing a split into two parts.
WBD and Skydance’s streaming platforms might be combined. HBO Max expects to have 150 million subscribers worldwide by next year. The flagship Paramount+ service has about 78 million and there’s also Pluto TV, 5 in the UK, SkyShowtime and a stake in sports streamer Fubo.
Four things to consider as to whether this deal has a realistic chance of happening are: financial markets, regulation, Hollywood and the possibility of a rival bid emerging.
Financial Markets
Ahmed Farhath at Seeking Alpha reports that word on Wall Street is largely favourable.
He quotes Bank of America analysts as saying: "Access to WBD's best-in-class library and IP would, in our view, significantly improve the prospects for PSKY, particularly in film and TV, and the potential combination of Paramount+ and HBO Max would create an extremely formidable competitor in streaming."
Research firm Needham was quoted as arguing that more than $3 billion of cost savings and more than $24 billion of value creation could be available. That’s better than what is being proposed in July’s WBD demerger. Also, the assumed backing of Oracle would mean better credit quality and an improved risk-reward profile for equity holders.
Regulation
There are logical questions about competition, such as the combination of two Hollywood studios, two TV production heavyweights (Warner Bros TV and CBS Studios) and oversight of a national network (CBS).
But in the present era it is difficult to separate US media regulation from bipartisan politics and the interventions of President and former TV star Donald Trump. Would CNN have to be sold (Trump hates it)? Would Oracle be allowed to buy TikTok, as has been mooted, AND Warner? Would CBS, Paramount or Warner have to bend again to the whims of the president – as happened with the settling of the frivolous “60 Minutes” interview lawsuit, which was then followed by the cancelation of CBS comedian Stephen Colbert, who had called the transaction “a bribe”. Would that Skydance deal for the Trump-baiting “South Park” have to be unwound?
Hollywood
The Californian production-distribution nexus might be in two minds over a WBD-Par combination. It would likely lead to further job losses, and reduced places where one could pitch a script.
But the combined group could be large and powerful, possibly ahead of Disney. "The number three and number five ranked studios by [North American] box office share would become number one. The number seven and number nine ranked domestic streaming services per Nielsen would become number five. The number four and number five ranked domestic television businesses by revenue would become number one with almost $30bn in 2025 revenue versus $22.6bn for the current leader," Guggenheim said, according to Seeking Alpha.
On the other hand, the New York Times reports executives gleefully praising Ellison Jr. for his energy and commitment to filmmaking.
“To have the head of a company — someone who is excited about movies, who believes in movies — is lacking in the Hollywood of today in a huge way,” the influential producer Lorenzo di Bonaventura, told the paper.
Rival bids
If Ellison can corral $80 billion for an expansion of his entertainment business, then so too could Amazon and Apple. Microsoft, Meta and Alphabet, equally, should be capable, but may be less inclined. And it would be fascinating to see Netflix make its first ever major acquisition. Or a move by Sony which, since COVID, has increasingly committed itself to entertainment, at the expense of electronics.
But most of this analysis is rooted in North America and English-language territories and does little to position either Paramount or Warner any better in the vast markets of Asia – China, wealthy Japan and Korea, fast-developing India or young and diverse Southeast Asia.
Hollywood conglomerates have repeatedly spotted opportunities in China, India and Southeast Asia, but have frequently failed in terms of execution and quietly pulled out. Warner, Columbia (Sony) and Fox all failed in China and Disney successfully opened a theme park in Shanghai but nevertheless had it wings clipped in the PRC.
Disney also squandered multiple opportunities to scale up in India. These include its acquisitions of UTV and Fox (which contained the pay-TV leader Star TV). Instead, Disney was outplayed by Reliance Industries (which was helped by former Disney executives and James Muroch).
Is it really possible that mainstream Hollywood conglomerates are willing to cede Asia, with its enviable entertainment-home shopping overlap, to tech giants from the US (Netflix, Amazon, Facebook and YouTube), China (Bytedance, Tencent, Alibaba, Baidu, Bili Bili, JD.com) or leading local media players Reliance Industries, Hybe and CJ ENM?
And it precisely because Sony’s present-day Japanese management DOES have an Asia strategy that I consider it unlikely to be an interventionist bidder in the WBD breakup or sale.
Sony’s attempt to swallow the Zee TV Indian giant failed to reach completion. But the group has enjoyed success with broadening out PlayStation, games to films adaptations and by staying out of the mass market streaming race. And it is now a major force in anime thanks to Aniplex (anime records are on the cards this weekend as “Demon Slayer” arrives in North American cinemas) and the revitalised and repurposed Crunchyroll. There are now clear signs that Sony is increasing its investment in Japanese films (of both the live action and animated variety), while Hollywood is very quietly pushed to the margins in this region.
Given that Warner Bros. has long been embedded in Japan’s production and distribution scene and could similarly use its global networks to help local language content travel better, there just might be an Asian alternative to yet another round of WB M&A.
Fine analysis, enjoyed that Patrick.
I don't see the tech giants making a play for a company that still has those bothersome cable networks to offload, though- don't you think ?
Agree on how much (or little) this would affect Asia, though human impact could still be painful.